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The e-reader uses a standard E Ink screen with a color filter. As a result, it still has the same low-power, lightweight, high-readability characteristics of its black-and-white brethren. The downside is that its screen is pretty static: color images and illustrations are okay (basic animation might be possible), but full-motion video is definitely out of the question. Furthermore, a lack of backlight means the colors won't be as bright as an LCD screen. Other features of the device have yet to be revealed; Hanvon is known for its handwriting technology, but it doesn't include it in all of its e-readers.
Color isn't as important in reading as it is in media entertainment and gaming. Will color illustrations be enough, or will readers instead choose the more powerful tablets with LCD screens? Chances are that consumers will want everything: e-books with color, media entertainment, video games, all with zero glare and the low power consumption that translates to longer battery life. Oh and a lower price tag wouldn't hurt. Right now that's not possible, so what tradeoffs will you settle for?
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